Privatization's Bad Name Isn't Totally Deserved

Privatization's Bad Name Isn't Totally Deserved

Article excerpt

Outside last month's UN Conference on Sustainable Development in
Johannesburg, privatization was a dirty word. Outside the annual
meetings of the World Bank and the International Monetary Fund here
this weekend, the tirade will continue. That's too bad.

Protesters and antiglobalizers say privatization of state-run
businesses has hurt the poor. And the common assessment in
developing and transition countries - from Argentina to Russia to
Sri Lanka - is that privatization has enriched the few at the
expense of the many, increased consumer prices, and reduced jobs -
and hasn't delivered on the promise to boost production and growth.

Influential thinkers concur with the negative popular perception.
Joseph Stiglitz, the former World Bank chief economist, excoriates
the IMF across the board, but reserves particular scorn for the way
it and other international financial institutions pushed for massive
and speedy privatization of state-owned industries and utilities,
especially in Russia. Mr. Stiglitz argues that privatization in the
absence of institutional safeguards - coherent laws; competent,
impartial courts, the decisions of which are enforced; a civil
service that is at least basically civil and that actually serves
rather than extracts - is a recipe for enriching the privileged via
corruption.

Certainly, privatization was oversold as the solution. A number
of corrupt and incompetent governments made a hash of the process;
and international financial institutions and some advisers pushed
mechanically for privatization long after they should have known
better.

Nonetheless, this is a case where the baby ought not be thrown
out with the bath water. Our study of the effects of privatization
suggests that ending - or worse, reversing - privatization would
hurt the world's poor.

In the short-run, privatization worsens wealth and income
distribution. Assets formerly held (in theory) for the public at
large are now held by a small number of owners - in the worst cases,
a tiny group, such as the Russian oligarchs. Jobs are usually lost.
In most countries the losses are small, but it's the older and women
workers who end up worse off. Prices go up for electricity and
water. Aggressive collection of fees hits the poor and middle class.
And often the windfall from sales revenue is eaten up by the rising
cost of public debt.

Benefits to new private owners are large and immediate. Benefits
to consumers and citizens are smaller and uncertain, sometimes never
emerging at all - as in privatized toll roads in Mexico, and water
in Bolivia and Argentina. …